Carlyle, TPG's Healthscope listing extends Australian IPO boom

A general view of the lobby outside of the Carlyle Group offices in Washington, May 3, 2012. REUTERS/Jonathan Ernst

SYDNEY (Reuters) - U.S. private equity giants TPG Capital and Carlyle Group (CG.O) aim to raise up to A$2.57 billion ($2.42 billion) by listing Australian hospital operator Healthscope Ltd, in what is shaping up as the country’s third-largest initial public offering.

The listing of the No. 2 Australian private hospital company continues the rush of buyout firms offloading assets onto the sharemarket as it trades near record levels. Australian IPOs have raised $4.8 billion in the first half of 2014, making the country the word’s fifth-biggest IPO market, according to Thomson Reuters data.

It also reinforces the dominance of health-related listings in a country where services are heavily government-subsidized and demand is growing along with a rapidly ageing population. If state-owned health insurer Medibank Private lists this year for about A$4 billion as planned, the country’s first, second and fourth-largest listings of 2014 will be in healthcare.

For the U.S. vendors, the listing represents a near doubling of an investment for which they paid A$1.99 billion in 2010. Healthscope will have a market capitalization of up to A$3.81 billion if the vendors, which are keeping one-third, sell the maximum number of shares for their top asking price.

That result appeared increasingly likely on Monday. The prospectus revealed that the vendors took the unusual step of underwriting the IPO with cornerstone investors rather than with the bankers themselves, and those outside parties have already committed to pay at the top end of the asking range, Healthscope Chief Executive Officer Robert Cooke said.

Cornerstone investors, which Cooke and Healthscope’s owners declined to identify, have already committed to about A$1.7 billion of the IPO and those representing about half that amount had already agreed to a price near the top of the range of A$1.76-A$2.29 per share, he said.

“It’s still a work in progress but that sort of level has given everyone a lot of confidence that there is support to do what we want to do and provides a floor to the pricing process,” Cooke told reporters in a telephone briefing.

The prospectus confirmed that Healthscope owners hope to sell the company at a hefty multiple of up to 23 times annual earnings. That would put it in the realm of Australia’s No. 1 private hospital owner, Ramsay Health Care Ltd (RHC.AX), which has a forward price-earnings ratio of 24, according to Thomson Reuters data.

“If I was being asked to pay 23 times for something, I’d expect at least mid-teens growth,” said a healthcare analyst who asked not to be named because he had not started formal coverage of the stock, referred to the company’s forecast earnings growth of nine percent until 2015.

The listing had secured strong cornerstone support as “you’re going to get a whole bunch of pension funds buying the stock because it’s low-risk, sustainable revenue”, the analyst added.

Healthscope’s Cooke sought to differentiate his firm from Ramsay, which has pursued an aggressive expansion into France’s private hospital system. Ramsay had expanded offshore because its domestic assets were fully capitalized, while Healthscope plans to invest about A$274 million building new private hospitals, Cooke said.

The number of Australians with private health insurance - the biggest driver of private hospital revenue - has risen from 9.8 million to 11 million since 2009 - just under half the population - as the state pays a 30 percent rebate on private health insurance premiums.

While the Healthscope listing may soon be eclipsed by Medibank, it would be the largest in Australia since rail freight company QR National Ltd, now known as Aurizon Holdings Ltd (AZJ.AX), raised $4.4 billion in November 2010, according to Thomson Reuters data.

Healthscope plans to announce the final price on July 25, before conditional trading begins on July 28.